Debt Free Story: How this couple paid off their mortgage in 5 years

Today’s Debt Free Story comes from Sarah in the UK. Sarah blogs over Tortoisehappy.com where she writes about generosity, health, consuming less and achieving financial independence with a focus on “happy”! Who doesn’t want more happiness!? Take it away, Sarah.

Tell us about yourself.

I’m Sarah, I live in the UK with my husband we can proudly, finally say that we are homeowners!! We didn’t really start out with debt, but we did start by renting one of the cheapest homes we could find in our area.

It was cheap for a reason; the single glazed sash windows had gaps in the frame and during a bitter winter, ice formed on the inside of the bedroom window and we could see our breath when we woke in the morning.

The central heating system was old and the pipes too narrow, and though the boiler system was going at full pelt, the radiators were never more than lukewarm. No amount of the landlord sending people out changed anything.

It was small, we had to breathe in to fit past each other in the kitchen, the ceiling above the stairs was too low meaning you had to dip your head slightly to avoid hitting it, the bathroom was big enough for only a shower, the yard big enough to store only our bins (well, there was standing room next to the bins, but it was fairly unappealing).

It was the best place we could have lived. Our home, the one we bought, feels like a palace. It’s not, far from it. But whenever we complain about the size of the bathroom or having nowhere to fit a dishwasher in our kitchen, we always remind ourselves of the ice on the window in the house we rented.

How much debt did you have ?

We took out a mortgage of £103,000, so about $134,000. It’s easy to think it’s not a lot of money, especially considering average house prices in the UK are over £200k. But we treated it like a debt to get rid of, not one to merrily pay back for 25 years or more.

What was the defining moment that made you decide to tackle your debt?

Our defining moment wasn’t about tackling our debt, although this was the result.

We bought our house and took out a mortgage in 2011. The bite of the credit crunch and the pain of job losses across the country were fresh in our minds. From the moment we bought our house (and slightly before), we wanted to get to the point of being able to survive on one income if it became necessary. Our largest monthly expense would be the mortgage by far. We deliberately chose a house well within the limits of what we could borrow and we set about reducing the balance, aiming to get to the point that we could survive if either of us lost our job.

To be able to survive on one income, we had to reduce or debt as much as possible.

What was your plan for paying off the debt?

You know how Warren Buffett says “Don’t save what is left after spending; spend what is left after saving”? Well, we kind of did that, but with the mortgage. Straight away, we set up a £250 per month over payment. Of course, £250 per month isn’t enough to pay off a £100,000 mortgage in 5 years, but it was the foundation from which we built.

In the first year, we decided to set a balance reduction target for that year. We’d mentally prepared ourselves for a frugal first year in our new home, and this focus meant that extra cash got thrown on the mortgage, rather than leaking out of our bank on frivolities.

The thing was, we got addicted to having a balance reduction target, and it continued for each year afterwards. We didn’t always hit the target, but we certainly paid off more than we would have without it.

Where did you find the extra money to put toward the debt?

For us, it wasn’t a case of feeling as though we had to “find” extra money, it was how we used our money to best effect.

One of my key rules for making a budget is to overestimate, rather than underestimate, where possible.

In some areas, you might have to spend more than expected (like when something goes wrong on the car), in which case, categories with a surplus can be used to supplement your emergency fund. If you consistently spend less than your budget, you end up with more available money to send to the mortgage (or whatever your debt is).

For example, our budget for home insurance is £200 per year, but our most recent premium was less than £150. The £50 surplus was paid off the mortgage.

How long did it take you to pay off the debt?

It took 5 years and 3 months to pay off our mortgage. Compared to some incredible stories with larger debts paid off in a fraction of the time, it might not seem that impressive, but on the other hand, if you’re sitting at home, looking at your debts and they have years left to run, it may seem impossible. I certainly know that feeling.

I used to feel frustrated reading other people’s stories; in the early stages of your journey, success seems impossibly far away.

But then I started to learn from other people’s tips and tricks, and it made me read more and more. 5 years ago I thought I knew how to handle money well… And 5 years from now I’ll probably look back and say the same, because there’s always something new to try.

How did you stay motivated to continue on your path to debt freedom?

In the early days, the daily cost of interest was a big motivator. Just knowing this number made us think twice (or three or four times) before spending on non-essential items. Our mortgage provider was charging about the equivalent of 7 takeaway coffees PER DAY. Quite frankly, it put me off spending the amount of a coffee, having already spent that amount several times over before I’d even got out of bed.

The other motivator was the knowledge that we wouldn’t have been able to cover all our bills and monthly essentials if one of us was out of work for any reason.

Once our balance began to reduce, we were charged less, and it made it easier to reduce the balance by more each year.

We never had our goal written down. But neither of us were in any doubt about what our goal was.

Did you make any mistakes or hit obstacles that slowed or stopped your progress? If so, how did you deal with them?

We’ve learned a lot over the last 5 years. You could see those lessons as mistakes but it is better to consider how you can use them to improve the future rather than dwelling on the past.

It’s incredibly easy to say this with my rose tinted spectacles of our debt free journey; there were times when I wanted to tear my hair out or curl up in a ball and cry, like on the week that our fridge freezer gave up, ruining £50 of food and being beyond repair, coinciding with a tap on the door from our neighbour to let us know our chimney was falling down.

One important lesson we learned was how much we could save on eating out. Rather than having a 2 course meal and expensive bottle of wine, we’d just have a main meal and drink each, or save even more and eat out for breakfast rather than in the evening. We switched the occasional takeaways for occasional convenience food or more expensive food to eat at home that we wouldn’t usually buy but would cost less than a takeaway.

How is your life different now that you are debt free?

When I get asked for my residential status, I have to suppress a big grin when I respond that I own my home outright, it’s such an incredible feeling!

My final mortgage payment was made using a redundancy pay-out that I received. No longer having debt means I’ve been lucky enough to spend time with my new niece, travel, do some volunteering and start my own blog (tortoisehappy.com) before starting to look for the job I want to do next. I wouldn’t have had this luxury if we hadn’t decided, 5.5 years ago, to design our finances in the way that we did.

What advice or actionable tips can you give people who want to pay off their debt?

If you’re trying to pay off debt, work out how much interest you’re being charged every day. Before you buy anything today (or tomorrow, if you’re reading this in the evening!), think about whether you can do without or can get a cheaper alternative, and use any money saved to reduce your debt, even if it’s just a small amount.

Most people have a job on their to do list that they know would save them money but it just seems like too much hassle. It could be switching to a better savings account, reducing (or cancelling!) cable TV, switching to a cheaper energy supply, selling a camera on ebay or anything else. Whatever it is, do it this week! And if you have a few things on that list, work your way through all of them. I don’t think you need me to tell you where that extra cash should go…

Finally, I would always advise you make some space in your budget to allow you to be generous. It might seem counter intuitive to have budget for a non-essential category like this, but on the days it seems you’re fighting a losing battle, if feels good to be able to help, even in just a small way, those whose battle is tougher than yours.

Sarah and her husband Alex live in the middle(ish) of England. After paying off the mortgage, the blog tortoisehappy.com was born, where Sarah tries to balance money saving advice with enjoying the journey. Their journey is towards financial independence, helped by their natural tendencies towards enjoying the great outdoors and reducing the ‘cost per use’ of their board game collection… And merciless budgeting, of course.

Have a debt free story of your own? Please share! Your story helps to inspire others. Contact me for more information!

It’s amazing how much money extra payments (prepayment) can reduce the total cost of a loan. I did it with my student loans and car loan. We are currently in the process of reducing a 15-year mortgage to a 7-year mortgage by paying an additional $350 each month.

Exactly. You know, in the UK, banks have to tell you how much interest you’ll pay over the life of the mortgage (assuming you just pay the minimum). Even equipped with that figure, the majority just accept it and make the minimum payments. 15 year mortgage down to 7 years is awesome, think about all that cash you’ll have for the 8 years after (and beyond, of course)!

Great point about the interest you’re being charged without “spending” on anything extra. After the first year or so we started treating our mortgage debt this same way and I’ve been pleased with the progress, which didn’t seem possible at first.

Incredible work! It’s not every day you hear about someone achieving this goal in just 5 years. I like your tip about over estimating on your budget to help save money. I’m finding that over estimating is always the best policy.

Overestimating really works for us… most of the time! Where it comes to the food budget, it can occasionally mean spending more than necessary because you’re less strict with yourself. On the other hand, it means other luxuries don’t creep in, because we’ve told ourselves that our money is already accounted for.

My wife and I paid off our mortgage four years ago. This was the best thing that we ever did. I took us 7.5 years to pay off our mortgage but now that we’re completely out of debt it’s the best feeling ever.

At work I feel freed to take on whatever project that I want instead of feeling like I have to climb the corporate ladder. This interestingly enough has gotten me promoted because I am more passionate about the projects that I am working on and not stressed about what if I fail and losing my job while not being able to pay off the mortgage.

So taking off the stress of the mortgage has been a double blessing for us.

Even if you don’t have enough to be completely financially free, 4 years completely debt free must give you an immense feeling of freedom. Already, you can work less or take a pay cut, if that’s something you wanted to do. And as you say, pursuing things you’re passionate about is paying off too. We would have been on track to pay our off in 7.5 years were it not for a lucky one off lump sum at the end. It’s an incredible achievement.

I can definitely appreciate how motivated you guys were to pay it off! That’s a huge accomplishment! I feel like I’m the weird finance blogger out there who doesn’t want to pay a dime over the minimum. My reason is that we have a 3.25% interest rate locked in and we plan on never selling this house. We’d like to move into another house in 5-10 years and rent this one out. After the mortgage is gone it will be straight profit, but we aren’t in a rush to eliminate the mortgage since we’d rather invest $ elsewhere than pay down the mortgage. Does that make sense? Not the typical approach but I think it fits with our short- and long-term goals.

Maybe you’re the weird finance blogger doing it the better way DC. If all my overpayments had gone into investments instead, based on how the markets have been over the last 5 years, I’m fairly certain our investment balance would be greater than our mortgage balance. 5 years ago I was staunchly anti investing. Fortunately, I’ve learned that you need to invest to build wealth, but that’s only been in the last couple of years. I can tell you, we have had numerous conversations about whether we should be investing instead of paying down debt. Investing was the ‘head’ decision, but our hearts overruled it.

Great story – buying a house you can’t afford is a huge mistake that is not easily undone. Yet it happens so often – banks are still way to eager to give huge loans and people are hooked when they see what the extra cash can buy.

The window story took me back to a college house we rented when my blanket froze to the window next to my bed……

There’s also a general philosophy that you should stretch yourself in buying a house and go to what you can afford. I think it’s because people see a house as part of a pension. Whilst it’s great to have a large asset, I’d rather not be forced to sell something I didn’t want to, to pay for a traditional old age retirement. Plus, a bigger house = more junk being bought to fill it!

I bet you also appreciate a house that doesn’t have ice on the inside too!

I don’t know if I’d describe it as being tough (although it could just be rose tinted spectacles). I think it was manageable because we knew that it would help us reach our goals sooner. My parents always gave me this view that your first house was supposed to be crappy, so not putting expectations on myself that I should be living somewhere better probably made it easier to deal with too. There were definitely a lot of mornings when it was tough to get out of bed though! Brrr….

“we got addicted to having a balance reduction target” – I love that. It’s wonderful that we can re-program our brains so that they offer a pleasure-inducing chemical rush for things that are actually good for us! My husband and I are focused on paying off our mortgage, and each month, we also try to reach our maximum target ($3,000). It doesn’t always happen, but it usually does – and each time, that chemical rush happens : )

Thanks Latoya. You never know what life is going to throw your way. Sometimes it helps you to reach your goals, other times it hinders. The best you can do is take control of your own actions and give yourself the best chance of success. I wish you all the best!